As the ultimate expression of the American Dream, it is fitting that Las Vegas should lie at the centre of the US housing nightmare.

Sin City has been America’s biggest boomtown over the past three decades, repeatedly defying expectations to record phenomenal growth on every level – until, that is, the city’s economy hit the skids this year in the wake of a nationwide housing crisis.

The population of America’s prime capitalist melting-pot has doubled to two million in less than a decade, pushing house prices up by 113 per cent between 2001 and 2006 and leaving a city in which only 3.2 per cent of the population was born in its home state, Nevada.

People and businesses from neighbouring California and far beyond poured in and borrowed money, drawn by relatively cheap property, as well as a dry, sunny climate, not to mention zero rates of income and corporate tax.

The influx of about 7,000 people a month has required the provision of a new primary school every four weeks over the past decade. As employment in Nevada grew by 36 per cent and the state’s economy jumped by 98 per cent – in both cases the fastest growth in America by a wide margin – 313,000 new homes were built in Las Vegas.

But the housing market overinflated and the bubble burst. New data out this week put Nevada at the top of America’s housing crisis league table for the month of April, with one in every 146 properties entering foreclosure. This is 3.6 times the national average and 95 per cent higher than a year earlier.

It comes after a first quarter in which one in every 54 houses in Nevada – and one in 44 in Las Vegas – foreclosed, putting the world’s capital of consumption third among America’s worst-hit cities. In the past year, the average house price in Las Vegas has fallen by 17 per cent.

The glitzy, awe-inspiring rows of hotels, casinos and retail resorts that line both sides of “The Strip”, the city’s 4-mile-long centrepiece on Las Vegas Boulevard South, still teem with exuberant tourists. But the city’s housing bust has cast a pall over the communities around the edges.

“It’s mindboggling how much the housing market is affecting everything,” said Darci Curry, a property broker, who is desperately fighting foreclosure herself after her mortgage unexpectedly “reset, capped out and doubled” to $3,200 a month in December.

“My son almost got laid off when the stairs company he works for sacked three quarters of their staff. He was lucky because he’s cheaper, so he was kept on and moved from the shop to putting in the stairs,” Ms Curry said.

The tax rebates that the Bush administration began sending out last month – ranging between a few hundred and more than a thousand dollars, depending on circumstances – won’t do much good either, she added.

Scratch beneath the surface and even The Strip is losing its lustre.

Scott Kleven, a floor supervisor patrolling the card tables in Bally’s casino on The Strip, said: “People are definitely spending less. Gas prices are rising, the economy is declining, the elections are coming up – no one knows what’s going on in the States.”

Across The Strip, a shoe-shiner operating in a palatial lavatory of another huge casino, bemoaned his recent loss of business. “People are not spending anything in here now, because of what’s been in the papers,” he said.

The autumn and winter are traditionally his most lucrative seasons, being the busiest time for rain and business conventions alike, but takings this spring have been well down on last year, he said. The number of conventions in Las Vegas is expected to decline by 15 per cent to 2,031 this year.

Corporate conventions have become a leading source of income in recent years as Las Vegas built ever grander casinos and broadened its offering in areas such as entertainment, retail and business services.

The diversification was motivated, in part, by growing competition from Atlantic City and casinos on Native American reservations. As a result, the contribution of nongambling revenues to the city’s economy has increased from 40 per cent to 60 per cent in the past 20 years.

Frank Fahrenkopf, chief executive of the American Gaming Association, said: “So much of the Las Vegas economy is now related to business conventions, retail and entertainment spending that it has made the city more vulnerable to a recession.”

This kind of spending is usually hit harder when times are tough than gambling which, although not recession-proof, is certainly “recession resistant”, Mr Fahrenkopf added.

Brenda Hord, a middle-aged woman from Atlanta, Georgia, who is in Las Vegas while her husband attends a convention, is a victim of the economic anxiety that is sweeping America and hurting the retail industry.

Perusing the site map at the entrance of the giant shopping “forum” attached to the Caesars Palace casino complex, Ms Hord said that she will be spending only a quarter to a half the amount on this trip that she normally does.

“I’m being much more conservative this time. Right now my husband has a good job but you just don’t know what the future will hold if the economy gets worse,” Ms Hord said, standing in a shopping mall that is the highest grossing retail space, per square foot, in the world.

“This year there will be nothing extravagant. I will probably buy some Christmas presents but I would have to think very hard about buying any art or anything like that.”

She added: “I’m not much of a gambler, but I will probably spend less on that, too. Yesterday I spent a whole dollar on the slot machines.”

It is the housing market slump that has done the most damage. In addition to the huge losses suffered by homeowners, the city’s construction workforce is looking very vulnerable. The property boom left Las Vegas with a construction industry that accounted for 12 per cent of its jobs, twice the national average.

About 10,000, or 10 per cent, of those construction jobs have been lost in the past year and many more are expected to go in the next year or two.

Jeremy Aguero, a Las Vegas economist, argues that the severity of the city’s property downturn, combined with its economy’s high exposure to construction and economically sensitive industries such as retail and entertainment means that the city is a “microcosm of the US, but its problems are more acute”.

Mr Aguero, who works for Applied Analysis, said: “The exuberant spending in shops and restaurants was predicated on the unsustainable base of home equity extraction.

“The situation is serious. The number of foreclosures is rising and, with the economy so dependent on construction, unemployment is rising, too, which is a problematic combination.”

Although nobody will put a figure on it, Las Vegas is thought to account for a notable portion of the $330 billion (£170 billion) loss that the banks have collectively recorded worldwide on mortgages and homeloan-related securities.

The highly leveraged economic monster that the Las Vegas property boom helped to create has come back to bite the city by unleashing the worst credit crunch in decades.

The city at a glance

— Las Vegas, with a population of 2 million, had about 40 million tourists last year. London (population about 8 million) had 26 million visitors.

— In the absence of corporate and personal income taxes, the local government pays for projects through a 7 per cent sales tax (8 per cent for hotel rooms) as well as additional taxes of 20 per cent on car hire, 6.75 per cent on gambling and 10 per cent on entertainment.

— 14 of the world’s 15 biggest hotels are in Las Vegas, led by MGM Grand, with 5,690 rooms.

— With 130,000 hotel rooms, Las Vegas has double the number that New York has.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• B&B shareholders forced into funding rescue
• John Lewis department store sales plunge 8.3%
• Families turn to credit to cover mortgage bills